It has not been the best of times for economists.
The experts who were so wrong on Brexit with their dire predictions of recession, higher taxes and even pestilence if Britain voted to leave the European Union.
All they have had to hang their gloom on in the post-Brexit world is the sharp fall in the pound. But even that has mixed messages: good for exports and overseas earnings for UK companies, but bad for tourists and inflation.
It is just as well then that the 2016 Nobel prize in Economic Sciences was won by the British-born and educated economist Oliver Hart who has worked at Cambridge, Warwick, the LSE and now Harvard.
His scholarship has been more concerned with the power of contracts to change society and corporate life rather than making duff forecasts. Nevertheless, Hart a scion of Samuel Montagu, one of Anglo-Jewry’s distinguished families, is not without blemish.
Among the key findings of his academic work is that the optimal contract should link payment to outcomes that reveal the performance of parties. That is a sensible precept with which we can all agree. But like all good ideas it has spawned some magnificent distortions.
Critics argue that Hart and his co-winner Bengt Holmström of the Massachusetts Institute of Technology spawned the executive pay bonanza which has elevated pay in the boardrooms to levels beyond he dreams of avarice and totally out of scale to that of ordinary workers. One only has to turn to the remuneration report of any FTSE100 company, spread often over more than a dozen pages, to recognise the complexities of contracts and incentives. This has permitted some of our most successful business people, Sir Martin Sorrell of WPP is a case in point, to hit the jackpot with a £70.4m package in the last financial year.
Hart is not the only Jewish Nobel prize winner for economics to play a big role in the public discourse this year. All those remain voters still licking their wounds could do worse than pick up a copy of Professor Joseph Stiglitz’s new book ‘The Euro and its threat to the future of Europe’ (Published by Allen Lane).
Stiglitz, a progressive adviser to Hillary Clinton, and a former chairman of the White House Council of Economic Advisers records how a badly designed eurozone has condemned large parts of Europe to penury. It has undermined the cohesion of the EU and most dangerously led to the rise of extremist parties of the right and left across the European space.
Another Jewish Nobel prize winner economist Paul Krugman, an expert of trade policy who writes a column in the New York Times, has dubbed Donald Trump ‘the Siberian candidate’ for president and forensically demolished much of the Republican candidate’s platform.
Aside from Trump’s his fawning admiration of Vladimir Putin, who currently is bombing the hell out of Aleppo, Krugman take the billionaire to task over his idea that he could run the US government like his ramshackle business empire. That would mean ‘stiffing vendors, profiting from enterprises even as they go bankrupt, seeing contracts as suggestions, clear-cut financial obligations as starting points for negotiation.’
In these difficult days for economies around the world it is hard not to escape the wisdom and thinking coming from Nobel prize winners in our own community. Much of the response to the ‘Great Recession’ was monetary and based on the work of the late Professor Milton Friedman who advocated creating money and low interest rates in times of crisis.
Now that monetary policy isn’t working as effectively the wisdom of the International Monetary Fund and others is that we need more infrastructure spending. Enter another Nobel winner Paul Samuelson of MIT and the brilliant generations of prize winning economists he cultivated at MIT.
When it comes to the dismal science, research, concepts and ideas born in our community, rule. Like it or not.
Alex Brummer is City Editor of the Daily Mail